From the expert: Prepare your business for an oil train spill

Recent disasters involving railroad shipments of crude oil have raised concerns about the impact of accidents involving trains carrying oil to refineries, terminals and ports in the Pacific Northwest.

In Oregon and Washington, 11 refineries and port terminals are already in existence or have been proposed to accept oil by rail. By some estimates, if all of the projects are completed and operating at capacity, we would have more than 12 mile-long trains per day on the Northwest’s railway system, carrying 858,000 barrels per day. It’s important for businesses and individuals to ensure they have taken steps to protect themselves in the event that an oil spill occurs.

Recent accidents

Probably the most significant oil train derailment occurred in Lac-Mégantic, Quebec, which killed 47 people and leveled the town’s business district. The 62 derailed tank cars released almost 2 million gallons of crude oil that exploded into a wall of flames 100 feet high. The cleanup is expected to take two years and cost more than $200 million.

Train accidents involving crude oil occurred in rural Alabama on November 2013 and in Casselton, North Dakota, on December 30, 2013. Similar derailments have occurred in Canada and Pennsylvania in January and February of this year.

Protect yourself now

If you live or operate a business near a rail line, you should take steps now to assess the consequences of a catastrophic oil spill. Recent news reports have disclosed deficiencies in the region’s oil spill preparedness. As a result, businesses and homeowners may not be able to rely on government help when a spill occurs.

Insurance coverage may be available to cover the immediate costs of an oil spill cleanup, so check your policy to see if you are covered. If you operate a business that might be impacted by an oil spill, also consider business interruption insurance. This coverage could help replace lost revenue that results from being unable to operate your business, whether it’s been directly impacted by the oil spill such as a spill onto a vineyard or orchard, or because the road to your business has been closed.

Responsibility for damages

If you don’t have insurance that would protect you or your business, litigation might be your only option to recover damages. Railways are generally responsible for the damages caused by derailments if the accidents are the result of their negligence. Failure of a railway to maintain tracks or equipment, operating at excessive speed, employing unqualified people and ignoring dangerous situations are common types of negligence.

Even where railroads accept responsibility for the derailment, their resources may not be adequate to compensate everyone impacted by a spill. The railroad responsible for the Lac-Mégantic disaster, the Montreal, Maine & Atlantic Railroad, had $25 million of liability insurance. When the cleanup contractors hired by the railroad were not paid, they walked off the job. The town, with the assistance of the provincial government, agreed to pay them and billed the railroad, which then declared bankruptcy.

U.S. laws affecting recoveries in the event of a railway incident may also leave claimants without satisfactory recourse in the event of a serious accident, so consulting with legal counsel is advised. Where claims against railways leave claimants uncompensated, other parties may be brought into litigation. These may include shippers, owners of the crude oil, rail car manufacturers and anyone else that contributed to the loss (i.e., motorists who collide with trains, third parties that are involved in track or railcar maintenance, engineers who set switches in the wrong position, etc.).

Recent derailment incidents have caught the public’s attention and are raising concerns about the safety of the people who live or work along railways. Natural resources, including drinking water supplies, may also be impacted. Since these railways go through both rural and urban areas, all Northwest businesses should be prepared.